THE SALVATION ARMY WORLD SERVICE OFFICE ALEXANDRIA, VIRGINIA OMB CIRCULAR A-133 FINANCIAL REPORT FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013

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1 THE SALVATION ARMY WORLD SERVICE OFFICE ALEXANDRIA, VIRGINIA OMB CIRCULAR A-133 FINANCIAL REPORT FOR THE YEARS ENDED SEPTEMBER 30, 2014 AND 2013

2 OMB Circular A-133 Financial Report For the Years Ended September 30, 2014 and 2013 Table of Contents Pages Independent Auditors Report on the Financial Statements and Supplementary Schedules of Indirect Cost Rate Calculation and Expenditures of Federal Awards Financial Statements Supplementary Information Schedule of Indirect Cost Rate Calculation Schedule of Expenditures of Federal Awards Notes to Supplementary Schedules Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Independent Auditors Report on Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A Schedule of Findings and Questioned Costs... 28

3 7910 WOODMONT AVENUE SUITE 500 BETHESDA, MD (T) (F) L STREET, NW SUITE 750 WASHINGTON, DC (T) (F) The Board of Trustees The Salvation Army World Service Office Alexandria, Virginia Report on the Financial Statements Independent Auditors Report We have audited the accompanying financial statements of The Salvation Army World Service Office (SAWSO), a nonprofit organization, which comprise the statements of financial position as of September 30, 2014 and 2013, and the related statements of activities, functional expenses, and cash flows for the years then ended, and the related notes to the financial statements. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to SAWSO s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of SAWSO s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. COUNCILOR, BUCHANAN & MITCHELL, P.C. CPAs AND BUSINESS ADVISORS

4 The Board of Trustees The Salvation Army World Service Office Report on the Financial Statements (Continued) Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Salvation Army World Service Office as of September 30, 2014 and 2013, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the financial statements as a whole. The accompanying supplementary schedule of indirect cost rate calculation is presented for purposes of additional analysis and is not a required part of the financial statements of SAWSO. The accompanying supplementary schedule of expenditures of federal awards, as required by U.S. Office of Management and Budget Circular A-133, Audits of States, Local Governments, and Non- Profit Organizations, is also presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audits of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated, in all material respects, in relation to the financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated February 20, 2015, on our consideration of The Salvation Army World Service Office s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering The Salvation Army World Service Office s internal control over financial reporting and compliance. Bethesda, Maryland February 20, 2015 Certified Public Accountants - 2 -

5 Statement of Financial Position September 30, 2014 (With Comparative Totals as of September 30, 2013) 2014 Unrestricted Board Temporarily 2013 Operating Designated Total Restricted Total Total Assets Cash and Cash Equivalents $ 1,326,525 $ - $ 1,326,525 $ 520,212 $ 1,846,737 $ 2,129,223 Investments 25,288, ,000 25,788,231 32,000,000 57,788,231 51,515,606 Grants Receivable 90,018-90,018-90, ,241 Beneficial Interest in Remainder Trust ,081 32,081 32,081 Other Receivables 174, , , ,612 Prepaid Expenses 5,592-5,592-5,592 - Project Advances 1,813,646-1,813,646-1,813, ,704 Total Assets $ 28,698,018 $ 500,000 $ 29,198,018 $ 32,552,293 $ 61,750,311 $ 54,977,467 Liabilities and Net Assets Liabilities Accounts Payable and Accrued Expenses $ 317,350 $ - $ 317,350 $ - $ 317,350 $ 409,243 Amounts Due to Projects 354, , , ,221 Deferred Revenue 137, , , ,118 Total Liabilities 809, , , ,582 Net Assets Unrestricted 27,888, ,000 28,388,616-28,388,616 24,537,740 Temporarily Restricted ,552,293 32,552,293 29,585,145 Total Net Assets 27,888, ,000 28,388,616 32,552,293 60,940,909 54,122,885 Total Liabilities and Net Assets $ 28,698,018 $ 500,000 $ 29,198,018 $ 32,552,293 $ 61,750,311 $ 54,977,467 See accompanying Notes to Financial Statements

6 Statement of Financial Position September 30, 2013 Unrestricted Board Temporarily Operating Designated Total Restricted Total Assets Cash and Cash Equivalents $ 1,576,159 $ - $ 1,576,159 $ 553,064 $ 2,129,223 Investments 22,015, ,000 22,515,606 29,000,000 51,515,606 Grants Receivable 146, , ,241 Beneficial Interest in Remainder Trust ,081 32,081 Other Receivables 189, , ,612 Project Advances 964, , ,704 Total Assets $ 24,892,322 $ 500,000 $ 25,392,322 $ 29,585,145 $ 54,977,467 Liabilities and Net Assets Liabilities Accounts Payable and Accrued Expenses $ 409,243 $ - $ 409,243 $ - $ 409,243 Amounts Due to Projects 311, , ,221 Deferred Revenue 134, , ,118 Total Liabilities 854, , ,582 Net Assets Unrestricted 24,037, ,000 24,537,740-24,537,740 Temporarily Restricted ,585,145 29,585,145 Total Net Assets 24,037, ,000 24,537,740 29,585,145 54,122,885 Total Liabilities and Net Assets $ 24,892,322 $ 500,000 $ 25,392,322 $ 29,585,145 $ 54,977,467 See accompanying Notes to Financial Statements

7 Statement of Activities For the Year Ended September 30, 2014 (With Comparative Totals for the Year Ended September 30, 2013) 2014 Unrestricted Board Temporarily 2013 Operating Designated Total Restricted Total Total Support and Revenues Public Support Received Directly Contributions $ 1,257,303 $ - $ 1,257,303 $ 2,600,823 $ 3,858,126 $ 963,444 Legacies and Bequests 208, , ,818 72,254 Received Indirectly Allocated by Federated Fund-Raising Organizations 325, , , ,842 Contributions from The Salvation Army Territories 13,797,971-13,797,971 3,124,130 16,922,101 11,332,106 Total Public Support 15,589,990-15,589,990 5,724,953 21,314,943 12,796,646 Grants from Governmental Agencies 230, , ,534 1,074,794 Investment Income Dividends and Interest 896, , , ,104 Realized Gains on Sales of Investments 3,276,082-3,276,082-3,276,082 1,966,811 Unrealized Gains in Values of Investments 1,096,246-1,096,246-1,096,246 2,955,156 Net Investment Income 5,269,288-5,269,288-5,269,288 5,867,071 Total Support and Revenues 21,089,812-21,089,812 5,724,953 26,814,765 19,738,511 Net Assets Released from Restrictions 2,757,805-2,757,805 (2,757,805) - - Total 23,847,617-23,847,617 2,967,148 26,814,765 19,738,511 Expenses Program Services Health Programs 827, , ,084 1,334,073 Anti-Human Trafficking and Livelihood Programs 737, , , ,183 Disaster Relief and Recovery Services 17,166,379-17,166,379-17,166,379 14,863,492 Total Program Services 18,731,087-18,731,087-18,731,087 16,968,748 Supporting Services Strategy and Fund-Raising 613, , , ,148 Management and General 652, , , ,527 Total Supporting Services 1,265,654-1,265,654-1,265,654 1,103,675 Total Expenses 19,996,741-19,996,741-19,996,741 18,072,423 Changes in Net Assets 3,850,876-3,850,876 2,967,148 6,818,024 1,666,088 Net Assets, Beginning of Year 24,037, ,000 24,537,740 29,585,145 54,122,885 52,456,797 Net Assets, End of Year $ 27,888,616 $ 500,000 $ 28,388,616 $ 32,552,293 $ 60,940,909 $ 54,122,885 See accompanying Notes to Financial Statements

8 Statement of Activities For the Year Ended September 30, 2013 Support and Revenues Public Support Received Directly Unrestricted Board Temporarily Operating Designated Total Restricted Total Contributions $ 940,061 $ - $ 940,061 $ 23,383 $ 963,444 Legacies and Bequests 72,254-72,254-72,254 Received Indirectly Allocated by Federated Fund-Raising Organizations 428, , ,842 Contributions from The Salvation Army Territories 11,321,362-11,321,362 10,744 11,332,106 Total Public Support 12,762,519-12,762,519 34,127 12,796,646 Grants from Governmental Agencies 1,074,794-1,074,794-1,074,794 Investment Income Dividends and Interest 936, ,887 8, ,104 Realized Gains on Sales of Investments 1,944,168-1,944,168 22,643 1,966,811 Unrealized Gains in Values of Investments 2,934,995-2,934,995 20,161 2,955,156 Net Investment Income 5,816,050-5,816,050 51,021 5,867,071 Total Support and Revenues 19,653,363-19,653,363 85,148 19,738,511 Net Assets Released from Restrictions 3,764,370-3,764,370 (3,764,370) - Total 23,417,733-23,417,733 (3,679,222) 19,738,511 Expenses Program Services Health Programs 1,334,073-1,334,073-1,334,073 Anti-Human Trafficking and Livelihood Programs 771, , ,183 Disaster Relief and Recovery Services 14,863,492-14,863,492-14,863,492 Total Program Services 16,968,748-16,968,748-16,968,748 Supporting Services Strategy and Fund-Raising 470, , ,148 Management and General 633, , ,527 Total Supporting Services 1,103,675-1,103,675-1,103,675 Total Expenses 18,072,423-18,072,423-18,072,423 Changes in Net Assets 5,345,310-5,345,310 (3,679,222) 1,666,088 Net Assets, Beginning of Year 18,692, ,000 19,192,430 33,264,367 52,456,797 Net Assets, End of Year $ 24,037,740 $ 500,000 $ 24,537,740 $ 29,585,145 $ 54,122,885 See accompanying Notes to Financial Statements

9 Statement of Functional Expenses For the Year Ended September 30, 2014 Program Services Supporting Services Anti-Human Disaster Trafficking and Relief and Total Strategy Management Total 2014 Health Livelihood Recovery Program and and Supporting Total Programs Programs Services Services Fund-Raising General Services Expenses Salaries $ 418,851 $ 258,125 $ 456,702 $ 1,133,678 $ 438,242 $ 265,558 $ 703,800 $ 1,837,478 Employee Benefits and Payroll Taxes 49,873 59, , ,608 72,926 81, , ,042 Professional Fees 23,588 49, , ,102 62, , , ,778 Travel, Meals, and Transportation 65,694 84, , ,794 18,242 14,333 32, ,369 Occupancy 15,567 25,351 24,412 65, , , ,021 Printing and Publications 80 6,446 1,263 7,789 9,485 1,876 11,361 19,150 Telephone 8,431 7,775 11,320 27,526 2,521 9,232 11,753 39,279 Postage and Shipping ,302 26,400 2,003 1,817 3,820 30,220 Equipment 6,176 6, , ,627-14,446 14, ,073 Office Expense 10,275 14,671 64,665 89, ,723 11, ,035 Construction Supplies - 14,804 1,362,212 1,377, ,377,016 Other Supplies 41,473 24, , , , ,139 Conference and Meetings 23, ,554 8, ,999 6,292 5,770 12, ,061 Support to Individuals 19,565 31,462 1,436,266 1,487, ,487,293 Foreign Currency Exchange (Gain) Loss (2,844) (3,941) (1,016) (7,801) (7,801) Grants to Affiliates 146,470 34,684 12,536,434 12,717, ,717,588 Total Expenses $ 827,084 $ 737,624 $ 17,166,379 $ 18,731,087 $ 613,472 $ 652,182 $ 1,265,654 $ 19,996,741 See accompanying Notes to Financial Statements

10 Statement of Functional Expenses For the Year Ended September 30, 2013 Program Services Supporting Services Anti-Human Disaster Trafficking and Relief and Total Strategy Management Total 2013 Health Livelihood Recovery Program and and Supporting Total Programs Programs Services Services Fund-Raising General Services Expenses Salaries $ 505,288 $ 316,632 $ 520,671 $ 1,342,591 $ 231,377 $ 259,672 $ 491,049 $ 1,833,640 Employee Benefits and Payroll Taxes 121,618 57, , ,041 36,129 81, , ,631 Professional Fees 36,147 12, , , , , , ,168 Travel, Meals, and Transportation 108,222 41, , ,354 10,560 6,489 17, ,403 Occupancy 27,166 31, , , , , ,842 Printing and Publications 2,359 13,111-15,470 1,739 1,613 3,352 18,822 Telephone 12,828 5,921 9,769 28, ,288 3,271 31,789 Postage and Shipping 1, ,432 29, ,235 3,386 33,307 Equipment 4,697 7,466 31,422 43,585 5,817 2,836 8,653 52,238 Office Expense 56,017 5, , , ,976 7, ,647 Construction Supplies - 3,520 2,522,564 2,526, ,526,084 Other Supplies 144,576 17, , , ,204 1, ,911 Conference and Meetings 29, ,581 15, ,733 4,810 5,336 10, ,879 Support to Individuals 258,042-51, , ,647 Foreign Currency Exchange (Gain) Loss 1,933 (10,302) 5,133 (3,236) - (394) (394) (3,630) Grants to Affiliates 24,813 25,988 10,779,244 10,830, ,830,045 Total Expenses $ 1,334,073 $ 771,183 $ 14,863,492 $ 16,968,748 $ 470,148 $ 633,527 $ 1,103,675 $ 18,072,423 See accompanying Notes to Financial Statements

11 Statements of Cash Flows For the Years Ended September 30, 2014 and Cash Flows from Operating Activities Change in Net Assets $ 6,818,024 $ 1,666,088 Adjustments to Reconcile Change in Net Assets to Net Cash Provided by (Used in) Operating Activities Gains on Sales of Investments (3,276,082) (1,966,811) Unrealized Gains in Values of Investments (1,096,246) (2,955,156) (Increase) Decrease in Operating Assets Grants Receivable 56,223 85,036 Other Receivables 15,606 (95,185) Prepaid Expenses (5,592) - Project Advances (848,942) (74,516) Increase (Decrease) in Operating Liabilities Accounts Payable and Accrued Expenses (91,893) (386,781) Amounts Due to Projects 43,565 (14,426) Deferred Revenue 3, ,362 Net Cash Provided by (Used in) Operating Activities 1,617,811 (3,620,389) Cash Flows from Investing Activities Sales of Investments 18,704,776 15,061,499 Purchases of Investments (20,605,073) (12,009,078) Net Cash Provided by (Used in) Investing Activities (1,900,297) 3,052,421 Net Decrease in Cash and Cash Equivalents (282,486) (567,968) Cash and Cash Equivalents, Beginning of Year 2,129,223 2,697,191 Cash and Cash Equivalents, End of Year $ 1,846,737 $ 2,129,223 See accompanying Notes to Financial Statements

12 Notes to Financial Statements September 30, 2014 and PURPOSE AND ORGANIZATION The Salvation Army World Service Office (SAWSO) provides technical assistance and project funding to the International Salvation Army in diverse areas of economic development around the world. SAWSO s multi-disciplinary team of development professionals works with Salvation Army personnel to promote community-based programming in primary health care, HIV/AIDS, anti-human trafficking and livelihood programs, and disaster relief and recovery services. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Accounting Financial statements are reported in accordance with accounting principles generally accepted in the United States of America. Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash Equivalents For purposes of the financial statement presentation, SAWSO considers all highly liquid instruments purchased with maturity dates of three months or less to be cash equivalents. Funds held in brokerage accounts are not considered cash equivalents. Investments Investments in debt and equity securities are carried at fair value. Accordingly, the changes in net unrealized appreciation or depreciation of debt and equity securities for the years ended September 30, 2014 and 2013, are reported in the statements of activities. SAWSO would recognize any transfers of investments between levels in the fair value hierarchy at the end of the reporting period. Beneficial Interest in Remainder Trust A donor has established and funded a trust, held by a third-party trustee, under which specified distributions are to be made to designated beneficiaries over the Trust s term. Upon termination of the Trust, SAWSO receives a partial amount of the assets remaining in the Trust. The Trust has been recorded as a receivable and an increase in temporarily restricted net assets at the last available fair value of SAWSO s share of the Trust s assets. The estimated future distributions expected to be received are discounted to present value at a rate of 4.2%

13 Notes to Financial Statements September 30, 2014 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Grants and Other Receivables Grants and other receivables are reported at their outstanding balances, reduced by an allowance for doubtful accounts, if any. Management periodically evaluates the adequacy of the allowance for doubtful accounts by considering SAWSO s past receivables loss experience, known and inherent risks in the receivables population, adverse situations that may affect an organization s ability to pay, and current economic conditions. The allowance for doubtful accounts is increased by charges to bad debts expense and decreased by charge offs of the receivables balances. Receivables are considered past due based on management s determination. Receivables are charged off based on management s case-by-case determination that they are uncollectible. As of September 30, 2014 and 2013, management has determined that no allowance for doubtful accounts is necessary. Project Advances and Amounts Due to Projects To expedite the development of SAWSO projects, funds are provided to less developed countries in advance of incurred expenses. The related expenses are recorded as incurred by projects, at which time the projects advance accounts are reduced. Expenses incurred in excess of the advances provided are recognized as amounts due to projects until paid. Deferred Revenue Pursuant to the terms of certain grants, revenues from grants from applicable government agencies are deferred when funds are advanced to SAWSO. Revenue for these grants is recognized in amounts equal to direct costs incurred and related recoverable indirect costs. Net Asset Classifications All contributions are considered to be available for unrestricted use unless specifically restricted by the donors. Amounts received that are restricted by the donors for specific purposes or times are reported as temporarily restricted or permanently restricted contributions that increase the respective net asset class. However, if a restriction is fulfilled in the same time period in which the contribution is received, the contribution is reported as unrestricted. Board designated net assets represent funds designated to maintain SAWSO operations in the case of severe cash flow difficulties while awaiting grant receipts

14 Notes to Financial Statements September 30, 2014 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net Asset Classifications (Continued) As donor restrictions expire, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. For the years ended September 30, 2014 and 2013, SAWSO did not maintain or receive assets required to be reported as permanently restricted net assets. Support Recognition for Tsunami, Earthquake, and Typhoon Relief Programs Funding for the tsunami, earthquake, and typhoon relief efforts is generated in two forms: (1) contributions from the public, and (2) reimbursements of program expenses incurred under donor partner memorandums of understanding with various territories of The Salvation Army around the world. The contributions received from the public are recorded as temporarily restricted contributions when received, and the entire amount received is spent directly on the tsunami, earthquake, and typhoon relief efforts. Support from program expense reimbursements from donor partners is recorded as the donor partners are billed for their shares of the expenses incurred to date on the projects for which the partners have agreed to provide shares of estimated total project costs. Indirect Expenses Pursuant to the terms of certain grants from applicable government agencies, indirect expenses have been allocated from management and general to grant expense based on an indirect cost rate. Functional Expenses The costs of providing the various programs and other activities have been reported on a functional basis consistent with internal reporting practices. Accordingly, certain costs have been allocated among the programs and supporting services benefitted. The following three sections summarize the key program services provided. Health Programs SAWSO s health programs are designed to help end poverty and improve quality of life. SAWSO supported health initiatives work at the community level through 15,000 Salvation Army corps serving the poor and vulnerable, increased access to health care by strengthening Salvation Army health facilities community-based services, and enhanced health service quality at Salvation Army hospitals and clinics. Program focus areas are: maternal child and

15 Notes to Financial Statements September 30, 2014 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Health Programs (Continued) adolescent health; HIV care and prevention; non-communicable diseases; and community health and health facilities. In Sri Lanka, SAWSO supports Salvation Army staff doing community outreach in an area beset with deadly kidney disease, identifying cases early and referring them for life-saving treatment. In Angola, The Salvation Army (TSA) is an esteemed partner in a high-profile project to eliminate polio by increasing immunization and conducting surveillance. In Eastern Uganda, the SCORE Project provides services to vulnerable children and families many affected by HIV and AIDS. In Nigeria, SAWSO responded to the needs of the Lagos State Community to help reduce the rate of new HIV infections, to provide equitable care and support for those infected and affected by HIV, and to reduce the stigmatization and discrimination in that area. Anti-human Trafficking and Livelihood Programs SAWSO seeks to improve economic conditions of families through economic, spiritual, and social support of women and children. In 2014, SAWSO continued the WORTH project in Kenya, which supports women through literacy training, business training, access to savings and lending services, insurance, and workshops that address harmful social conditions including human trafficking, HIV, and other health issues. This project has grown to include 17,000 members. In partnership with The Salvation Army Pakistan, SAWSO continues to support family sustainable livelihood development through literacy training and vocational or small business training skills and is working to expand this program in over 50 communities. SAWSO supports over 15,000 women in self-help groups in India through micro-loans, and savings and health awareness. SAWSO s livelihood programs in Haiti include vocational education, micro-loans, and agriculture training. Disaster Relief and Recovery Services A large portion of support and corresponding expenses for relief, recovery, and reconstruction services for the years ended September 30, 2014 and 2013, related to Super Typhoon Haiyan that hit the Philippines in November SAWSO responded immediately supplying food, water, shelter repair materials, and medical services. Following the immediate response, the main agriculture recovery project in the Philippines has been the replacement of the estimated 3 million coconut trees that fell during the storm s high winds. Coconut farmers are provided with seedlings and fertilizer according to the amount of land they have and the number of their trees that were damaged. Assistance to the area of Japan affected by the March 2011 earthquake and tsunami continued in the upgrade of the Portal Center, which is used as a community meeting space for Minamisanriku. The interior of the building was upgraded to make the building usable for concerts and children s activities

16 Notes to Financial Statements September 30, 2014 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Disaster Relief and Recovery Services (Continued) In January 2010, a devastating 7.0 earthquake rocked the country of Haiti, causing massive damage and loss of life to one of the poorest countries in the Americas. In the nine months of the initial emergency response phase, approximately $12 million was used to feed and house and provide medical services, clean water, and security to hundreds of thousands of individuals and families. Nearly 8 million meals were provided to families in need, medical care was provided for more than 30,000 patients, and shelter and hygiene support was provided for 20,000 homeless people living in Place de la Paix Square. In , the response has focused on a recovery and reconstruction phase. SAWSO s focus is in three primary areas: Long-term housing reconstruction projects for displaced families, which include vocational training, income generation, and capacity building, strategically located in the North, South, and West areas of Haiti. Primary Health Care focused in Port-au-Prince and Fond-de-Négres. Integrated community development programs implemented in 50 communities throughout Haiti. The integrated community development programs are helping community programs address concerns such as clean water, income generation, access to education, and food security. In addition, these programs also help develop an infrastructure to mitigate future disasters. In Indonesia, The Salvation Army has spent the last year serving the needs of more than 10,000 farmers and their families who were displaced by the eruption of the Sinabung Volcano. The three phase relocation plan will build a school, build a primary health clinic, and provide a community outreach program with income generation programs focusing on developing the agricultural sector. SAWSO has committed approximately $500,000 to date and more is anticipated. The conflict in Eastern Ukraine continues to cause thousands of people to flee their homes. SAWSO provided support for the internally displaced persons with three types of food packages distributed. The first type of food package was for people who were not in transit, which included dry food that would support a family for a week. The second food package was ready-to-eat food for individuals in transit, and the third food package was dry baby food for families with infants. The conflict in the Central African Republic has sent many fleeing to safety in neighboring countries. As of May 31, 2014, the UN High Commission for Refugees had reported 11,407 refugees living in the Republic of Congo. The Salvation Army assisted 1,051 women and babies with canned food, hygiene items, mosquito nets, clothing, and blankets in coordination with the other humanitarian agencies present

17 Notes to Financial Statements September 30, 2014 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Disaster Relief and Recovery Services (Continued) In February 2010, regions of Chile were affected by the earthquake and tsunami. SAWSO assisted the communities affected by providing new homes and materials to repair homes to 40 families in the Dichalo, Hualpencillo, and Talca areas of Chile. These families now have a safe place to live, in addition to a better quality of life and an improved home and equipment. Income Taxes SAWSO was incorporated in the District of Columbia (the District ), USA, pursuant to the District s Nonprofit Corporation Act and began operations on October 1, SAWSO is a charitable corporation exempt from federal income taxes under Section 501(a) of the Internal Revenue Code as an organization described in Section 501(c)(3) and is not classified as a private foundation under Section 509(a). Uncertain Tax Positions SAWSO follows the Financial Accounting Standards Board Accounting Standards Codification (FASB ASC), which provides guidance on accounting for uncertainty in income taxes recognized in an organization s financial statements. As of September 30, 2014 and 2013, SAWSO had no unrecognized tax benefits related to uncertain tax positions in its information returns that qualified for either recognition or disclosure in its financial statements. SAWSO s policy would be to recognize interest and penalties on tax positions related to its unrecognized tax benefits in income tax expense in the financial statements. For the years ended September 30, 2014 and 2013, there were no matters that would have resulted in an accrual for interest and/or penalties. As of September 30, 2014, SAWSO s Forms 990, Return of Organization Exempt from Income Tax, for the years ended September 30, 2013 and 2012, and the nine months ended September 30, 2011, were subject to examination by the Internal Revenue Service, generally for three years after they were filed. Foreign Currency Translation Certain expenses were reported by foreign affiliates of The Salvation Army in local currencies and translated into U.S. dollars at the average exchange rate during the period in which the expenses were incurred. Amounts advanced to projects were adjusted for foreign currency fluctuations occurring between the time the funds were disbursed by SAWSO and the time funds were spent by foreign affiliates

18 Notes to Financial Statements September 30, 2014 and SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Contingency SAWSO receives a portion of its revenue from government grants. The ultimate determination of amounts received under these programs generally is based upon allowable costs that are subject to audit under government audit requirements. Management is of the opinion that no material amount will be disallowed by granting agencies, and no provision for disallowed amounts has been made. 3. CONCENTRATION OF CREDIT RISK SAWSO maintains its cash accounts in banks that are insured by the Federal Deposit Insurance Corporation (FDIC). Deposits are insured up to $250,000 per institution. At September 30, 2014 and 2013, SAWSO s uninsured deposits were approximately $1,721,000, and $1,913,000, respectively. 4. INVESTMENTS AND FAIR VALUE MEASUREMENTS SAWSO s investments are its only assets or liabilities measured at fair value on a recurring basis at September 30, 2014 and SAWSO has categorized its investments based on a three-level fair value hierarchy of inputs as follows: Level 1 - Values are based on quoted prices for identical assets in active markets. Level 2 - Values are based on quoted prices for similar assets in active or inactive markets. Level 3 - Values are based on unobservable inputs to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. The fair value measurement objective is to determine an exit price from the perspective of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs would reflect SAWSO s judgment about the assumptions that market participants would use in pricing the asset or liability (including assumptions about risk). Unobservable inputs are developed based on the best information available in the circumstances, which might include SAWSO s own data

19 Notes to Financial Statements September 30, 2014 and INVESTMENTS AND FAIR VALUE MEASUREMENTS (CONTINUED) Investments are stated at fair value and consisted of the following at September 30, 2014: Fair Value Level 1 Inputs Money Funds $ 2,668,351 $ 2,668,351 U.S. Government Securities 5,616,379 5,616,379 Mutual Funds - Fixed Income 5,363,037 5,363,037 Mutual Funds - Equities 1,559,653 1,559,653 Mutual Funds - Non-Traditional 1,586,592 1,586,592 Exchange Traded Funds - Equities 3,545,868 3,545,868 Corporate Bonds and Notes 2,968,764 2,968,764 Asset Backed Securities 1,050,731 1,050,731 Preferred Equities 50,162 50,162 Equities 33,378,694 33,378,694 Total $ 57,788,231 $ 57,788,231 Investments are stated at fair value and consisted of the following at September 30, 2013: Fair Value Level 1 Inputs Money Funds $ 2,534,039 $ 2,534,039 U.S. Government Securities 6,159,704 6,159,704 Mutual Funds - Fixed Income 3,066,189 3,066,189 Exchange Traded Funds - Equities 3,163,537 3,163,537 Corporate Bonds and Notes 3,099,940 3,099,940 Asset Backed Securities 1,491,310 1,491,310 Preferred Equities 61,263 61,263 Equities 31,939,624 31,939,624 Total $ 51,515,606 $ 51,515,606 None of SAWSO s investments are valued using Level 2 or Level 3 inputs

20 Notes to Financial Statements September 30, 2014 and INVESTMENTS AND FAIR VALUE MEASUREMENTS (CONTINUED) Investment income consisted of the following: Dividends and Interest Revenue $ 896,960 $ 945,104 Net Realized and Unrealized Gain 4,372,328 4,921,967 Net $ 5,269,288 $ 5,867, RELATED PARTY TRANSACTIONS Members of SAWSO s Board of Trustees are also officers in The Salvation Army in the United States of America. The four territorial headquarters of The Salvation Army in the United States of America made contributions to SAWSO during the years ended September 30, 2014 and 2013, of approximately $16,922,000 and $11,332,000, respectively. These funds were used in part to provide project funding to the international programs of The Salvation Army and most are included in SAWSO s program services expenses with the caption on the statements of functional expenses, Grants to Affiliates. The affiliates are various The Salvation Army territories around the world. Unexpended funds are included in unrestricted and temporarily restricted net assets at year end. SAWSO has been granted the variance power to redirect contributions received from the four The Salvation Army Territories in the United States of America that are restricted for international projects. Fund-raising expenses for international projects are incurred by The Salvation Army s four territorial headquarters. Employees of SAWSO may participate in a money purchase defined contribution pension plan with The Salvation Army corporations. For the years ended September 30, 2014 and 2013, SAWSO recognized pension expense of approximately $50,000 and $47,000, respectively. Such employer contributions are based upon compensation and are paid by SAWSO to The Salvation Army - USA Eastern Territory. SAWSO leases its office space under a year-to-year lease with the USA National Headquarters of The Salvation Army (NHQ). For the years ended September 30, 2014 and 2013, rental expense was approximately $145,000 and $137,000, respectively

21 Notes to Financial Statements September 30, 2014 and TEMPORARILY RESTRICTED NET ASSETS As of September 30, 2014, temporarily restricted net assets, other than those related to assets held under split-interest agreements, were available for the following purposes: Relief and Reconstruction Services Haiti Earthquake $ 11,601,409 South East Asia Tsunami Relief 7,722,201 PHL Typhoon Haiyan 5,719,752 Japan Earthquake/Tsunami Relief 4,263,834 Other International Disaster Relief 1,132,731 Pakistan Earthquake/Flood Relief 480,730 Mexico 445,787 China Earthquake Relief 423,007 Chile Earthquake Relief 313,302 Myanmar Cyclone Relief 206,113 East Africa Famine 170,591 Indonesia Earthquake Relief 40,755 Total $ 32,520,212 As of September 30, 2013, temporarily restricted net assets, other than those related to assets held under split-interest agreements, were available for the following purposes: Relief and Reconstruction Services Haiti Earthquake $ 13,931,886 South East Asia Tsunami Relief 7,849,879 Japan Earthquake/Tsunami Relief 4,354,670 Other International Disaster Relief 1,130,794 Pakistan Earthquake/Flood Relief 548,234 Mexico 517,329 China Earthquake Relief 423,007 Chile Earthquake Relief 381,739 Myanmar Cyclone Relief 206,113 East Africa Famine 168,658 Indonesia Earthquake Relief 40,755 Total $ 29,553, SUBSEQUENT EVENTS SAWSO has evaluated subsequent events through February 20, 2015, the date on which the financial statements were available to be issued

22 Supplementary Information

23 Schedule 1 Schedule of Indirect Cost Rate Calculation For the Year Ended September 30, 2014 Total Management and General Expenses per Financial Statements $ 652,182 Total Indirect Costs ( A ) $ 652,182 Total Program Services Expenses per Financial Statements $ 18,731,087 Less Grants to Affiliates (12,717,588) Less Construction Supplies - Tsunami/Earthquake Projects (1,377,016) Add Strategy and Fund-Raising Expenses 613,472 Total Allowable Expenses ( B ) $ 5,249,955 Indirect Cost Rate ( A Divided by B ) 12.42% See accompanying Notes to Supplementary Schedules

24 Schedule 2 Schedule of Expenditures of Federal Awards For the Year Ended September 30, 2014 Federal Grantor/Pass-Through Grantor/ Federal Program Title Agreement Number Expenditures Major Programs Awards U.S. Agency for International Development Pass-Through from World Vision Angola Polio Awareness - Total Major Programs Awards AID-OAA-A SAWSO $ 212,026 Other Federal Awards U.S. Agency for International Development Pass-Through from APC Uganda Integrating Family Planning into OVC APC-GM ,938 U.S. Agency for International Development Pass-Through from FHI 360 Zambia ZPCT II FHI FCO/IDA400255/ ,570 Total Other Federal Awards 18,508 Total Expenditures of Federal Awards $ 230,534 See accompanying Notes to Supplementary Schedules

25 Notes to Supplementary Schedules For the Year Ended September 30, BASIS OF PRESENTATION The accompanying schedule of expenditures of federal awards (the schedule ) includes the federal grant activity of The Salvation Army World Service Office (SAWSO) under programs of the federal government for the year ended September 30, The information in this schedule is presented in accordance with the requirements of OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Because the schedule presents only a selected portion of the operations of SAWSO, it is not intended to and does not present the financial position, changes in net assets, or cash flows of SAWSO. 2. SIGNIFICANT ACCOUNTING POLICIES Expenditures reported on the schedule of expenditures of federal awards are reported on the accrual basis of accounting. Such expenditures are recognized following the cost principles contained in OMB Circular A-122, Cost Principles for Non-Profit Organizations, wherein certain types of expenditures are not allowable or are limited as to reimbursement. Expenditures include a portion of costs associated with general activities (indirect costs), which are allocated to federal awards under negotiated indirect cost rates and are adjusted to actual rates at year end

26 7910 WOODMONT AVENUE SUITE 500 BETHESDA, MD (T) (F) L STREET, NW SUITE 750 WASHINGTON, DC (T) (F) Independent Auditors Report on Internal Control over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards The Board of Trustees The Salvation Army World Service Office Alexandria, Virginia We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of The Salvation Army World Service Office (a nonprofit organization), which comprise the statement of financial position as of September 30, 2014, and the related statements of activities, functional expenses, and cash flows for the year then ended, and the related notes to the financial statements, and have issued our report thereon dated February 20, Internal Control over Financial Reporting In planning and performing our audit of the financial statements, we considered The Salvation Army World Service Office s internal control over financial reporting (internal control) to determine the audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of The Salvation Army World Service Office s internal control. Accordingly, we do not express an opinion on the effectiveness of The Salvation Army World Service Office s internal control. A deficiency in internal control exists when the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity s financial statements will not be prevented, or detected and corrected, on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, yet important enough to merit attention by those charged with governance. Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control that might be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. COUNCILOR, BUCHANAN & MITCHELL, P.C. CPAs AND BUSINESS ADVISORS

27 The Board of Trustees The Salvation Army World Service Office Compliance and Other Matters As part of obtaining reasonable assurance about whether The Salvation Army World Service Office s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the determination of financial statement amounts. However, providing an opinion on compliance with those provisions was not an objective of our audit, and, accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards. Purpose of this Report The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not to provide an opinion on the effectiveness of The Salvation Army World Service Office s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering The Salvation Army World Service Office s internal control and compliance. Accordingly, this communication is not suitable for any other purpose. Bethesda, Maryland February 20, 2015 Certified Public Accountants

28 7910 WOODMONT AVENUE SUITE 500 BETHESDA, MD (T) (F) L STREET, NW SUITE 750 WASHINGTON, DC (T) (F) Independent Auditors Report on Compliance for Each Major Program and on Internal Control over Compliance Required by OMB Circular A-133 The Board of Trustees The Salvation Army World Service Office Alexandria, Virginia Report on Compliance for Each Major Federal Program We have audited The Salvation Army World Service Office s compliance with the types of compliance requirements described in the OMB Circular A-133 Compliance Supplement that could have a direct and material effect on each of The Salvation Army World Service Office s major federal programs for the year ended September 30, The Salvation Army World Service Office s major federal programs are identified in the summary of auditors results section of the accompanying schedule of findings and questioned costs. Management s Responsibility Management is responsible for compliance with the requirements of laws, regulations, contracts, and grants applicable to its federal programs. Auditors Responsibility Our responsibility is to express an opinion on compliance for each of The Salvation Army World Service Office s major federal programs based on our audit of the types of compliance requirements referred to above. We conducted our audit of compliance in accordance with auditing standards generally accepted in the United States of America; the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States; and OMB Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations. Those standards and OMB Circular A-133 require that we plan and perform the audit to obtain reasonable assurance about whether noncompliance with the types of compliance requirements referred to above that could have a direct and material effect on a major federal program occurred. An audit includes examining, on a test basis, evidence about The Salvation Army World Service Office s compliance with those requirements and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion on compliance for each major federal program. However, our audit does not provide a legal determination of The Salvation Army World Service Office s compliance. COUNCILOR, BUCHANAN & MITCHELL, P.C. CPAs AND BUSINESS ADVISORS

29 The Board of Trustees The Salvation Army World Service Office Report on Compliance for Each Major Federal Program (Continued) Opinion on Each Major Federal Program In our opinion, The Salvation Army World Service Office complied, in all material respects, with the types of compliance requirements referred to above that could have a direct and material effect on each of its major federal programs for the year ended September 30, Report on Internal Control over Compliance Management of The Salvation Army World Service Office is responsible for establishing and maintaining effective internal control over compliance with the types of compliance requirements referred to above. In planning and performing our audit of compliance, we considered The Salvation Army World Service Office s internal control over compliance with the types of requirements that could have a direct and material effect on each major federal program to determine the auditing procedures that are appropriate in the circumstances for the purpose of expressing an opinion on compliance for each major federal program and to test and report on internal control over compliance in accordance with OMB Circular A-133, but not for the purpose of expressing an opinion on the effectiveness of internal control over compliance. Accordingly, we do not express an opinion on the effectiveness of The Salvation Army World Service Office s internal control over compliance. A deficiency in internal control over compliance exists when the design or operation of a control over compliance does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, noncompliance with a type of compliance requirement of a federal program on a timely basis. A material weakness in internal control over compliance is a deficiency, or combination of deficiencies, in internal control over compliance, such that there is a reasonable possibility that material noncompliance with a type of compliance requirement of a federal program will not be prevented, or detected and corrected, on a timely basis. A significant deficiency in internal control over compliance is a deficiency, or a combination of deficiencies, in internal control over compliance with a type of compliance requirement of a federal program that is less severe than a material weakness in internal control over compliance, yet important enough to merit attention by those charged with governance. Our consideration of internal control over compliance was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control over compliance that might be material weaknesses or significant deficiencies. We did not identify any deficiencies in internal control over compliance that we consider to be material weaknesses. However, material weaknesses may exist that have not been identified. The purpose of this report on internal control over compliance is solely to describe the scope of our testing of internal control over compliance and the results of that testing based on the requirements of OMB Circular A-133. Accordingly, this report is not suitable for any other purpose. Bethesda, Maryland February 20, 2015 Certified Public Accountants